The global coffers of alternatives fund managers swelled to a record $7.4 trillion in 2015, up from $6.9 trillion in 2014, Preqin, the alternatives data provider, reported Tuesday.
The private capital industry, in particular, grew over the past year, with assets under management standing at $4.2 trillion as of June.
The overall sector added $193 billion in in assets under management in the first half, more than the $149 billion growth in the whole of 2014.
For purposes of the report, private capital refers to all closed-end alternative assets funds, including private equity, private debt, private real estate, infrastructure and natural resources.
Combined hedge fund assets under management grew to $3.2 trillion from $3 trillion in 2014, despite a challenging year for performance.
“The private capital industry has continued to show healthy growth over the past year,” Preqin’s chief executive, Mark O’Hare, said in a statement.
“This has been fueled by a rise in dry powder levels, following another strong year for fundraising, and an increase in the unrealized value of portfolio assets.”
At the same time, he noted, fundraising was becoming ever more competitive, and as dry powder levels increased, they put pressure on finding attractive investments.
“The hedge fund industry has not enjoyed the same gains made in 2013 and 2014, although it has nevertheless grown to well over three trillion dollars,” O’Hare said.
“While the prolonged period of weak returns has taken its toll, returns are also difficult to find in other asset classes. 2016 looks set to be a challenging year, but the industry still has the potential for significant further growth.”
Private equity assets under management hit a new high of $2.4 trillion in June 2015.
Preqin said new commitments were prompted by robust distributions from funds: a record $475 billion in 2014, and a further $189 billion in the first half of 2015.
Buyout funds that closed in 2015 raised $152 billion, 17% less than in 2014. Venture capital funds raised $47 billion, just $3 billion short of the amount raised the year before. Preqin reported that dry powder had increased by 7.1% since 2014, and stood at $1.3 trillion as of June 2015.
Eighty-eight percent of investors polled by Preqin said they expected to commit more or the same amount of capital to private equity in 2016 as in 2015.
Seventy percent said asset valuation, and its possible effect on returns, was the biggest challenge they faced in 2016.
Hedge funds, emerging from an especially difficult year in 2015, added nearly $72 billion in new net capital inflows, much of this in the first half when performance was positive.
The industry hemorrhaged nearly a net $5 billion between July and December as returns fell by 2.4%.
The Preqin All-Strategies Hedge Fund benchmark returned 2% for the year, down from a 4.7% gain in 2014. Relative value strategies recorded the best returns, up 5%, while event-driven strategies posted the lowest ones, down 0.1%. Forty-four percent of fund managers polled by Preqin said they had not met their performance objectives in 2015, and 33% of investors said performance had been below their expectations.
One-third of investors told Preqin they would reduce their hedge fund allocations in 2016, while a quarter said they would increase theirs.
Eight-nine percent of real estate allocators polled by Preqin said their investments had either met or exceeded their expectations in 2015, and nearly as large a proportion expected to increase or maintain their allocation in the year ahead.
Distributions from real estate funds appear to have kept these investors happy: $103 billion in the first half of 2015, following record distributions of $187 billion in 2014.
Preqin research showed that private real estate funds generated an average rate of return of 16% in the three years to June 2015, similar to higher-risk buyout and venture capital strategies.
— Check out Top 10 Private Equity Trends in 2016 on ThinkAdvisor.